Spar posts higher full year earnings

The attributable profit for the period was up 30.3% to R681.6 million. This was achieved on the back of a 23.2% growth in turnover to R26.7 billion. The group declared a final dividend of 155 cents per share for the year, representing an increase of 37.8% over the previous year.

The group said its strong performance was driven by new store openings, retail space growth and market share gains. Cash generation remained strong, notwithstanding the group's substantial capital expenditure programme.

During the first six months inflation ran at moderate levels and the group experienced good volume growths. In the second six months volumes slowed, as inflation increased sharply. Spar stores achieved good turnover increases (+21%) and national market share increased to 27.6% of the measured market.

The group's liquor division had an exceptional year on the back of substantial store openings and good organic growth. Build it achieved satisfactory growth despite a slowdown in the building industry.

The competitive environment resulted in the gross margin declining slightly from 8.2% in 2007 to 8.1% in 2008. Gross profit of R2.2 billion increased 21.5%.

"Warehouse expenditure continued to reflect the efficiencies obtained from the implementation of new technologies. Distribution costs however, increased markedly as a result of the dramatic rise in the cost of fuel. The group continues to focus on load and route optimisation and driver training in an effort to minimise delivery costs," Spar said.

Net interest earned of R26.6 million (2007 - R22.0 million) reflected higher interest received on positive cash balances and outstanding loans. The group reviewed its policy of funding retailer loans and during the latter half of the year discounted a number of existing loans with its bankers.

"The group will continue to assist retailers to secure loan facilities for store purchase and revamp purposes."

The group maintained its investment in Zimbabwe. Trading conditions in that country remained extremely difficult although, in general, Spar outperformed the market.

The group invested R365.3 million in expansionary and R60.8 million in replacement capital expenditure. In addition to the expenditure on the Western Cape facility (R106 million), some R126 million was spent on expanding the South Rand warehouse and R49 million on the purchase of property in KwaZulu-Natal.

"The South Rand facility expansion is scheduled for completion in early 2010, whilst the construction of a perishable facility in KwaZulu-Natal will be completed in November 2009. The group continued to invest in the upgrading and modernisation of its transport fleet," Spar said.

The group proceeded with a limited share buy back programme. Prior to the September year-end close, 163 200 shares had been purchased. A further 719,800 shares have been purchased since year-end. The average cost of all shares purchased was R48.67 per share. Proceeds from the exercising of share options amounted to R37.7 million.

Notwithstanding an overdraft position at year-end of R310 million (2007 - cash balance R389.2 million) the group's cash flow remained strong.

"The group remains in the enviable position of being able to self-fund its capital expenditure programme, whilst at the same time lowering its dividend cover and buying back shares."

The group expects 2009 to be a challenging year.

"High interest rates, a weaker rand, ongoing high levels of inflation and a slowing economy will put pressure on consumers' disposable income. Management are however confident that they will be able to produce a satisfactory level of earnings growth for the year.

"Focus areas will be driving sales, cost control and improvements in operational efficiencies.

"Cash generation during 2009 will remain positive and will accommodate the group's capital expansion requirements as well as providing for dividends and share buy backs. Capital expenditure for 2009 is forecast at R480 million," the group said.

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